Saudi oil adviser sees prices firmer on stronger demand

3/16/2015

MOHAMMED ALY SERGIE and STEFANIA BIANCHI

DOHA, Qatar (Bloomberg) -- Global crude use is recovering, and prices are steadier as demand matches supply, the senior adviser to Saudi Arabia’s oil minister said.

Prices, which fell by almost half last year, have stabilized at about $60/bbl based on fundamental market forces, Ibrahim Al-Muhanna said at a conference in Doha, Qatar. It’s “too early to say” if the Organization of Petroleum Exporting Countries, which kept output unchanged in November, will change policy when it gathers again on June 5, he said.

“I am confident that demand is and will be stronger,” said Al-Muhanna, adviser to Saudi Oil Minister Ali Al-Naimi. “Day after day, thousands of people enter the middle class and will further increase demand for energy. Europe may be an exception, but the overall global picture remains positive.”

Oil has gained 17% in London over the past two months as U.S. drillers idled an unprecedented number of rigs in reaction to the biggest plunge in prices since 2008. Crude dropped 61% from June to January after OPEC signaled it would leave shale producers and other suppliers to bear the brunt of a glut. OPEC pumps about 40% of the world’s oil, and Saudi Arabia is its biggest producer.

Brent crude, a benchmark for more than half of the world’s oil, fell 34 cents to $54.33/bbl on the London-based ICE Futures Europe exchange at 12:40 p.m. Singapore time. U.S. crude inventories may start to stretch the country’s storage capacity, the International Energy Agency said in a report that day. Prices haven’t hit bottom yet as U.S. supply will continue rising, said former Federal Reserve Chairman Alan Greenspan.

‘Healthy’ Supply

“Supply will remain healthy, and the price will firm up,” Al-Muhanna said. Low oil prices hurt all producers, including his country and Russia, he said. “Saudi Arabia has never been in a price war with anybody.”

Oil markets should be in balance by the third-quarter, when demand may even exceed supply, Paul Horsnell, the global head of commodities research at Standard Chartered, said at the Doha conference. U.S. shale production can’t increase at current prices, and Horsnell sees reason to be optimistic about supply, he said.

Growth in U.S. output, currently rising by 1.2 MMbopd, will slow by the end of this year to 500,000 to 700,000 bopd, Ed Morse, Citigroup’s head of commodities research, said at the conference. The slower rate of increase in U.S. production could last for a decade, Morse said.

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